Thinkpad: Reading Between The Lines

Happy Sunday.

This week gave us a reading of the post-second wave economy. The Indian economy grew 8.4% over a year ago in the July-September quarter. Quarter-on-quarter, seasonally adjusted numbers tell us that the economy, after a contraction of 6.3% in the April-June quarter, expanded 6.6% in the July-September quarter.

As always, economists have a lot to say about what went behind that one number. It's almost like they've been let loose in a candy store of data so each picks her or his favorite takeaway.

Sajjid Chinoy of JPMorgan points to the fact that the economy is now close to its pre-pandemic level. Of course, it remains well below where it would have been had the crisis not hit at all. In eco-speak, that is written as “economy remains below pre-pandemic trend”. Chinoy, however, pointed out that if you look at core gross value added, which excludes agriculture and government spending, the gap with pre-pandemic levels is wider.

In simple English—the repair process was the non-agriculture private sector economy continues.

Private consumption, what you and I spend, is improving but perhaps not as quickly as other segments. It's still 3% below its pre-pandemic level, said Sonal Varma of Nomura. Investments, led by government spending, and exports are doing better. You can read an overview of the various takes on the economy in this piece.

Within consumption, too, this was a quarter when personal services started picking up again. We're going back to our salons and restaurants. Thank god for that! For a deeper dive into consumption, watch this conversation with Pranjul Bhandari of HSBC.

There were other positive signals for the economy. GST collections held strong. PMI data was good. Credit card spends for October hit Rs 1 lakh crore.

Next week, when the Monetary Policy Committee sits down with its chai and pakoras, it will weigh some of this visible improvement in growth against the invisible uncertainty of a new Covid-19 variant emerging before they decide on whether it is time to shift focus to inflation. Incidentally, this week saw the U.S. Federal Reserve chief finally give up on "transitory" as the favoured description for inflation. This might just be the beginning of a turn in thinking on inflation, writes Mohammed El-Erian.

The base case scenario in India still is that the pretend policy rate (repo rate) will be held steady at least until the first quarter of next year, while the real policy rate (reverse repo) will be raised a touch at this meeting. The market is ready for it. We won't bore you with the weeds on a weekend but, come Monday, you may wanna catch up with what is expected from the monetary policy meet by reading this piece from Abheek Barua of HDFC Bank.

Elsewhere, the Reserve Bank of India superseded the board of non-bank lender Reliance Capital. With more than 20 subsidiaries under, this will be a complex insolvency, unless someone wants to buy the platform lock, stock, and barrel. It's also an insolvency that will hurt other shareholders more than it will hurt promoter Anil Ambani, whose shareholding in the venture had dwindled over time.

The action though was a long time coming.

The Reliance Capital saga, where there was allegedly misdirected lending, including to group companies, perhaps underscores why India's banking regulator has not pressed ahead with plans to allow corporates into banking, writes Andy Mukherjee.

Finally, in the weekly episode of the crypto series (make it an OTT series already!), Mint and NDTV report that the bill will shun the word “cryptocurrencies” in favor of "crypto assets" and hand over-regulation to the market regulator. After our last newsletter, a veteran reminded us of an approach the Indian central bank used during YV Reddy's years. The approach was to look for “regulatory comfort” and not just “regulatory compliance”. It would be a good way to look at cryptocurrencies (oops, assets) even now.

Till next week.